“Harmonizing” Contract Language Leads Two Circuit Courts To Deny Arbitration
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Two parties recently convinced federal circuit courts that the language of their arbitration agreements was not sufficient to compel arbitration of their disputes. Both cases turned on how courts “harmonize” language from different parts of an agreement or from multiple agreements.
The decision from the Eighth Circuit was a pretty easy one. The parties’ contract required them to mediate any dispute. Then it said: “if the dispute is not resolved through mediation, the parties may submit the controversy or claim to Arbitration. If the parties agree to arbitration, the following will apply…” The party fighting arbitration (a city in South Dakota) argued the quoted language does not mandate arbitration, it makes arbitration an option for the parties, so the case should remain in court.
The party seeking arbitration emphasized a sentence at the end of the arbitration paragraph saying that the arbitrator’s “decision shall be a condition precedent to any right of legal action.” It argued that the only way to harmonize that language is to conclude that arbitration is required. The court disagreed, finding that a reasonable interpretation is simply that if the parties decided to arbitrate, the arbitration decision is a condition precedent to further legal action. Quam Construction Co., Inc. v. City of Redfield, __ F.3d___, 2014 WL 5334781 (8th Cir. Oct. 21, 2014). Therefore, the Eighth Circuit affirmed the district court’s denial of the motion to compel arbitration.
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